Americans love a deal, and therein lies a trap.
The gullibility of U.S. consumers is astounding. Detroit figured out a century ago the average car buyer will gladly pay $1,500 extra to get a $1,000 rebate.
I’m guilty. I do this in the grocery store when I pay $1.09 for a can of beans marked down from $1.29. I’ll even buy 6 of them, because I’m saving 20 cents a can. The problem is, I don’t like beans.
That’s not a bargain at all, because in economics lingo, their marginal utility to me is zero. I paid $1.09 for something I don’t need. That’s $1.09 too much — hardly a bargain.
The next time you’re tempted to buy something because it’s on sale, remember this:
It’s not a bargain if you don’t need it, regardless of the price.
Inn economics one basic assumption is buyers are rational. Economists struggle with this irrationality as a buyer who does not beans should not buy them even if they are a great bargain. Of course the economists make other assumptions such as consumers would be at an equal footing as Detroit and would get a real reduction of $500 in price rather than a false rebate.